Cisco Systems 401(k) Poorly-Performing Investment Options Class Action

Defined contribution plans, like 401(k)s, have become the primary way for Americans to save for retirement. They are governed by the Employee Retirement Income Security Act (ERISA). The complaint for this class action alleges that Cisco Systems, Inc., its Board of Trustees, and the Administrative Committee for the Cisco Systems, Inc. 401(k) Plan breached their fiduciary duties under ERISA by choosing and maintaining poorly-performing investment options in the plan.

The class for this action is all participants in, and beneficiaries of, the Cisco Systems, Inc. 401(k) Plan, at any time between July 29, 2016 and the date of judgment in this case, or an earlier date as determined by the court, including beneficiaries of deceased persons who were participants in the plan at any time during the above period.

The plan had nearly 60,000 participants and account balances and assets of more than $16 billion, which puts it in the top 0.1% of all such plans according to size. The complaint therefore alleges that it has significant bargaining power in the market.

The main contention of the complaint is that the defendants in this case breached their fiduciary duties by choosing and maintaining a set of poorly-performing investment options, the BlackRock LifePath Index Funds.

These are a suite of target date funds (TDFs), which are funds that are identified by participants’ target retirement years and that alter their investments according to the age and stage in life of the participants. Investments are intended to be riskier and thus potentially higher-return when participants are young and to gradually substitute more secure investments as the retirement years approach.

The complaint alleges that the defendants in this case “failed to act in the sole interest of Plan participants and breached their fiduciary duties by imprudently selecting, retaining, and failing to appropriately monitor the clearly inferior BlackRock TDFs.”

Making the situation even worse, the complaint alleges, the BlackRock TDFs were chosen as the plan’s qualified default investment option, that is, the investment option chosen by the plan when participants did not indicate where their funds were to be invested.

To support its allegations, the complaint has chosen a number of large TDFs, such as Vanguard Target Retirement and T. Rowe Price Retirement, to compare with the BlackRock TDFs in various ways. Tables show the performance of BlackRock compared to the best- and worst-performing of the comparators at various points in time.

The complaint alleges, “If Defendants had taken their fiduciary duties seriously during the Class Period, they would have replaced the BlackRock TDFs with a suitable alternative TDF suite. Their failure to do so caused Plan participants to miss out on substantial investment returns for their retirement savings.”

Article Type: Lawsuit
Topic: Employment
Tags: Breach of Fiduciary Duty, ERISA, Investment Performance, Retirement Plans